Thursday, December 24, 2015

FIRPTA WITHHOLDING RATE BUMPED UP TO 15%

The Protecting Americans from Tax Hikes Act of 2015 was recently signed into law. Section 324 of the Act modifies Code Section 1445 to increase the required withholding amount on dispositions by nonresident aliens and foreign entities of U.S. real property interests from 10% to 15%.

Nonetheless, the prior 10% rate will continue to apply dispositions of a residence if (a) the amount realized is $1 million or less, (b) the transferee will use the property as a residence, and  (c) the $300,000 or less exemption from withholding does not apply.

I guess since the withholding tax is imposed on non-U.S. persons, this provision does not contradict the title of the Act which reads "protecting Americans from tax hikes" (emphasis added), at least if one reads the term "American" as only including tax residents of the USA and excluding tax residents of other countries in the Americas. Technically, this is not a tax hike anyway - just a withholding tax that is subject to refund if the seller's U.S. income taxes are less than the 15% withholding.

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